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MFNC Reports Strong Second Quarter 2013 Results

2013 Press Releases Expand

Manistique, Michigan – Mackinac Financial Corporation (Nasdaq: MFNC), the bank holding company for mBank (the “Bank”), today announced second quarter 2013 income of $1.197 million or $.22 per share compared to net income available to common shareholders of $4.142 million, or $.97 per share for the second quarter of 2012. The 2012 second quarter results included a $3 million valuation adjustment to deferred tax assets, which equated to $.70 per share.

Weighted average shares totaled 5,557,842 shares for the six month period in 2013 and 5,556,133 shares in the 2013 second quarter compared to 3,419,736 shares for both periods in 2012. The increase in outstanding shares for 2013 reflects the issuance of 2.138 million shares of common stock in August of 2012. Quarterly and six month per share earnings for 2012 have been adjusted for the common stock issuance.

Operating results for the first six months of 2013 totaled $1.873 million or $.34 per share compared to $1.639 million or $.39 per share, excluding the $3.0 million deferred tax valuation adjustment, for the same period in 2012. The Corporation’s subsidiary, mBank, recorded net income of $2.539 million for the first six months of this year compared to $2.248 million, excluding the deferred tax valuation adjustment, for the same period in 2012.

Total assets of the Corporation at June 30, 2013 were $553.501 million, up 5.56 % from the $524.366 million reported at June 30, 2012 and up 1.38% from the $545.980 million of total assets at year-end 2012. The Corporation and the Bank are both “well-capitalized” with Tier 1 Capital at the Corporation of 11.01% and 10.15% at the Bank.

Key highlights for the first six months of 2013 results include:

  • Improved credit quality with a Texas Ratio of 9.02% compared to 13.59% one year ago, with nonperforming loans of $3.983 million, a $1.392 million reduction from a year earlier.
  • Reduced credit related charges in 2013 at $.410 million compared to $.403 million in the 2012 six month period.
  • Relative stability in net interest margin at 4.17% compared to 4.23% for the first six months of 2012.
  • Six month Secondary mortgage loan income of $.578 million, compared to $.524 million in the same period of 2012.
  • We continued to have success in SBA/USDA lending with gains on the sale of these loans of $.663 million in the first half of 2013, compared to $.620 million in the first half of 2012. mBank was awarded, for the second time in three years, the 2012 state wide Community Lender of the Year by the Small Business Administration’s Michigan office.
  • Redemption, at par, of $7.0 million of the Corporation’s $11.0 million Series A preferred stock.

Loans and Nonperforming Assets

Total loans at June 30, 2013 were $455.555 million, an 8.61% increase from the $419.453 million at June 30, 2012 and up $6.378 million from year-end 2012 total loans of $449.177 million. In addition to the aforementioned balance sheet totals, the company services $120 million of sold mortgage loans, up from $66 million at June 30, 2012. We also service another $50 million of sold SBA and USDA loans. Total loans under management now reside at $626 million.

The Corporation had total new loan production of $80 million in the first six months of this year. Comprising the total production were $30 million in commercial loans, and $50 million in retail, $46 million of which were mortgages. The Upper Peninsula continues to drive a large majority of the new originations, totaling $55 million, with Southeast Michigan production of $6 million, and the Northern Lower Peninsula with $19 million.

Commenting on new loan production, Kelly W. George, President and Chief Executive Officer of mBank stated, “We are seeing good loan opportunities in all of our markets but both the Northern Lower Peninsula and Southeast Michigan from a commercial lending growth standpoint have been stunted somewhat due to increased competition for loans and many more lenders have turned to offense with rates and terms we were not comfortable entertaining. We also remain cautious, but encouraged that our mortgage lending activity continues to perform well through the volatility of rates lately with a good mix of home purchases and refinances as this is an area we are keeping a close management eye on as we move throughout the rest of the year. Our commercial pipeline remains good throughout all our regions heading into the second half of the year for both traditional and SBA/USDA guaranteed loans as well. As a community bank operating in many different markets within the state, we understand that these types of government guaranteed loans allow small companies to compete and procure the capital needed to expand, leading to increased opportunities for new jobs. Our company believes strongly in reinvesting in the communities that we live and work in and we are honored to be recognized for our commitment and for the second time in three years, be awarded the SBA Community Lender of the Year Award for the state of Michigan.”

Nonperforming loans totaled $3.983 million, .87% of total loans at June 30, 2013 compared to $5.375 million, or 1.28% of total loans at June 30, 2012 and down $.704 million from December 31, 2012. Nonperforming assets were reduced by $2.429 million from a year ago and stood at 1.17% of total assets. Total loan delinquencies resided at .45% or $2.038 million, almost solely made up of non-accrual commercial loans. George, commenting on overall credit quality, “We remain pleased with the overall credit performance metrics of our loan portfolio from both a micro perspective as noted above, as well as from a macro perspective with all industry segments performing satisfactory with a good diversification of loan types being originated. Our performance metrics have continued to improve for the last several years and our current level of nonperforming assets are manageable with associated costs much more in line with a normal business climate as Michigan continues to recover. We will remain diligent in our timely monitoring on any problem loans that arise and will stay true to our core underwriting principles and will not stretch credit quality even with more banks’ lending and competition fierce for new loans to augment balance sheet growth”.

Margin Analysis

Net interest income in the first six months of 2013 increased to $10.425 million, or 4.17%, compared to $9.782 million, or 4.23%, in the same period in 2012. The increase in net interest income is due primarily to increased levels of earning assets. George, commenting on margin items stated, “We expect some margin pressure in future periods as borrowers continue to seek longer term fixed rate alternatives and the overall competition for new loans in all markets increasing with very few other good investment alternatives available given the prolonged low interest rate cycle. We have used some extended term wholesale funding sources given the inability to get market clients to move into these longer terms liabilities to match fund as best we can to help mitigate longer term interest rate risk should rates move forward more quickly than market indicators could foresee. We also continue to offer very competitive variable rate loans with interest rate floors to protect the margin in the near term, and balance the overall duration of interest rate risk in the portfolio.”


Total deposits of $447.907 million at June 30, 2013 increased 5.30% from deposits of $425.381 million on June 30, 2012. Total deposits on June 30, 2013 were up $13.350 million from year-end 2012 deposits of $434.557 million. The overall increase in deposits for the six months of 2013 is comprised of an increase in noncore deposits of $27.911 million and a decrease in core deposits of $14.561 million. George, commenting on core deposits, stated, “In 2013 we have experienced some declines in core deposits which is primarily due to our reduced rates on transactional accounts and certificates to maximize our net interest margin where we have seen a small exit from primarily rate only driven clients which we remain cognizant of as we move into the second half of the year. We have also experienced some withdrawals by several of our larger commercial accounts as they have utilized their liquidity for business expansion opportunities and general debt pay downs given their limited investment options. We have supplemented our deposit growth with very manageable levels of noncore deposits to manage interest rate risk in this prolonged low interest rate cycle, along with the need to align our funding costs with rates and maturities on loans as noted previously.”

Noninterest Income/Expense

Noninterest income, at $2.009 million in the first six months of 2013, increased $.098 million from the same period in 2012 of $1.911 million with the largest drivers of this income coming from the secondary market mortgage activities and gains from SBA/USDA loan sales. Income from secondary mortgage activities totaled $.578 million in 2013 compared to $.524 million in 2012. SBA/USDA loan sale gains were behind 2013 with year to date gains of $.663 million compared to 2012 gains of $.620 million. Noninterest expense, at $8.834 million in the first six months of 2013, increased $.793 million, or 9.86% from the same period in 2012 given the growth of the company’s operating platform and the need to keep pace both from a personnel, and infrastructure standpoint, with the changing internal risk profile of the company and external banking regulatory environment. Our overall non-interest expense base remains at, or below peer levels.


Total shareholders’ equity at June 30, 2013 was $66.520 million, compared to $60.352 million on June 30, 2012, an increase of $6.168 million, or 10.22%. Common shareholders’ equity was $62.520 million, or $11.26 per share at June 30, 2013 compared to $49.352 million, or $14.43 per share at June 30, 2012 and $61.448 million, or $11.05 per share on December 31, 2012.

Paul D. Tobias, Chairman and Chief Executive Officer, concluded, “We are pleased with our overall financial performance thus far in 2013. The Michigan economy is much improved but it has yet to translate into robust loan demand in all of our markets. The improving health of the banking community has led to aggressive pricing and loan structures. We have a very good team of bankers who are finding opportunities for us in these competitive markets. We are working hard to find the right relationships but have the discipline to pass on commercial loans when either pricing or credit structure fail to meet our standards.

Looking forward, we believe that as the economy continues to improve opportunities for franchise expansion will present themselves. With our strong capital base and improving core earnings generation, coupled with our stable and experienced management team, we stand ready to create shareholder value through either organic growth or acquisition. We retired $7 million of our preferred stock with capital from our recent offering but remain well capitalized and are aggressively looking for opportunities to deploy our capital for growth in earnings and shareholder value.”

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $550 million and whose common stock is traded on the NASDAQ stock market as “MFNC.” The principal subsidiary of the Corporation is mBank. Headquartered in Manistique, Michigan, mBank has 11 branch locations; seven in the Upper Peninsula, three in the Northern Lower Peninsula and one in Oakland County, Michigan. The Company’s banking services include commercial lending and treasury management products and services geared toward small to mid-sized businesses, as well as a full array of personal and business deposit products and consumer loans.

Forward-Looking Statements

This release contains certain forward-looking statements. Words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “should,” “will,” and variations of such words and similar expressions are intended to identify forward-looking statements: as defined by the Private Securities Litigation Reform Act of 1995. These statements reflect management’s current beliefs as to expected outcomes of future events and are not guarantees of future performance. These statements involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. Factors that could cause a difference include among others: changes in the national and local economies or market conditions; changes in interest rates and banking regulations; the impact of competition from traditional or new sources; and the possibility that anticipated cost savings and revenue enhancements from mergers and acquisitions, bank consolidations, branch closings and other sources may not be fully realized at all or within specified time frames as well as other risks and uncertainties including but not limited to those detailed from time to time in filings of the Company with the Securities and Exchange Commission. These and other factors may cause decisions and actual results to differ materially from current expectations. Mackinac Financial Corporation undertakes no obligation to revise, update, or clarify forward-looking statements to reflect events or conditions after the date of this release.


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